One for the OPEC Skeptics

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OPEC meets in Vienna, next Wednesday 30 November, in an attempt to agree on an oil production limit. The stakes have been getting higher and the market implications of this meeting have been rising.

OPEC meets in Vienna, on 30 November, in an attempt to agree on an oil production limit. The stakes have been getting higher and the market implications of this meeting have been rising.

As the chart above shows, OPEC oil production has risen by a lot more than most anticipated. There have been a number of contributors to this but the main one is that Iran has done a much better job of restoring production than many thought possible since sanctions against it were lifted

The risk looks two way from current levels. OPEC has said it is aiming at an agreement to limit production to 32.5-33m barrels a day. If it can actually pull that off, it will improve the oil outlook considerably. Russia and others may also announce a production freeze. That potentially clears the way for prices to rise to levels where US shale producers become interested in adding to production. That could see prices well into the $50 range.

If OPEC can’t agree and production stays around recent high levels, the oil price could struggle for a while yet. That could mean a sell-off given the strong rally over recent days. There’s also well-entrenched market skepticism about OPEC actually adhering to any agreement given its widely divergent interests and the political friction between many of its members

The Brent chart has reached an interesting level for traders who are OPEC skeptics. Last night it peaked at a potential Gartley sell set-up. This involves the 61.8% Fibonacci retracement and a swing equivalent level where the latest CD swing is the same size as the preceding AB swing. One approach to this situation is to wait for confirmation that the Gartley level is being rejected, for example a move below yesterday’s low would see the daily candles making lower lows after peaking at 61.8%.